Andrew Ghezzi's experience with the mass-market, online entity was a pleasant surprise, but it was troubling that he was winning clients largely in proportion to their physical proximity to Boston

October 29, 2013 — 4:57 PM UTC by Guest Columnist Andrew Ghezzi

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Brooke’s Note: Thank you, Andrew, for the time and care that clearly went in to this elucidating piece.

I usually don’t answer the phone during evening hours, but I recognized the area code. It was my largest prospect to date that had come through the California-based NestWise lead-generation service. With a net worth of $400,000, a wife who had just returned to work and a new set of twins, “Client A” would be a great fit for my newly hatched practice as a NestWise advisor. I grabbed the phone. See: NestWise is starting to take shape and take flight under LPL’s wing — and from under Schwab’s shadow.

“Hello Andrew. This is “Client A.” My wife and I sat down and went over your thoughts and ideas from our initial call, and we decided to go with you. I just wanted to call and let you know the news and that we considered several other members from your team, but in the end, the decision was clear.”

When I asked him for a few items that stood out in our conversation that made him comfortable with me as a practitioner, one thing that struck me as odd was his mentioning of our geographic proximity. Its important to note that I was on the north shore of Boston and this client was easily a four-hour drive south. So while I was able to win the account, in the back of my head I was starting to see a trend that didn’t necessarily fit with the “online” vision behind the NestWise LLC model.

For Client A, four hours was fine because it was assumed I would drive to him. In fact, many clients came at me from all directions, and I was left scratching my head, saying, “ ... How in the world can I grow a practice when I’m driving all over New England?”

I was really thinking that people would get the idea that a small $250 planning fee meant no face to face time and little hand holding.

But what I was finding was the opposite …. they still expected a considerable amount of white-glove treatment. I did have some people come through the system who were far away, but the pattern over time was that fact-to-face wins the account. See: Online RIAs will mostly fail — and here are 10 reasons why.

The NestWise dream

And yes, I did meet several personally. These were individuals from my natural market who found out I was now an advisor and had reached out to me. Others I met as well, and given that I was closest to Boston, many prospects in the Boston area assumed I would come down to meet them. Its not like we had 10 advisors in the area, I covered quite a bit of zip codes.

The idea behind NestWise was simple: Provide affordable planning for the middle-class and place advisors nationally to carry it off. Building on the success of the Veritat online software, LPL had set some ambitious goals for automating the process. My take was that if there was any national independent broker dealer who could serve the mass market successfully, LPL was the horse to bet on.

Getting introduced to NestWise was a dream. The system was built in such a way that there were two levels of advisors that could service accounts. One level was more of a homegrown advisor school for those new to the industry. It was here that people were brought on with a base salary and staffed at several strategic locations spread around the country. Given their large size, there were several layers of support, weekly training seminars and thorough doses of one-on-one training and development.

A new model

The second level of advisors, which I was a part of, was an experienced pool. I already had a master’s degree in financial planning, 10 years of marketing and sales experience and a natural market of friends and prospects that had been built over the years. Over the months leading to the decision to go with NestWise, I had already considered some of the larger wirehouses, gone through various first stages of personality assessments, but it was the structure as an independent that appealed to me most with NestWise.

As for the wirehouse opportunities, I think some of them are fine for the right person. I was and still am to this day focused 100% on the middle market. I never got the feeling that doing small plans and getting clients on board with less than $100,000 in assets was sustainable with any of the wirehouses. See: The amazing success of Merrill Edge and why some legacy Merrill brokers think it’s eating their seed crop.

I am also quite enamored with the idea that the advisor market needs a little jolt, one that embodies scale and one that models a business differently other than just chasing assets under management. I really felt the NestWise model represented something new and unique and was certainly an environment focused on planning without too much pressure for winning managed assets.

On top of this, there was no sales pressure, no in-house products other than an optional wrap account, and NestWise took steps to see that every independent advisor had the chance to learn the trade. The executives at NestWise hired some of the best advisor coaches in the industry, and to me that made all the difference; while I was experienced, I still had zero experience in the actual planning and investment work. Having the chance to build my own practice with a nominal lead flow from a nationally coordinated marketing effort was the icing on the cake.

Flaw in the plan

But when I started to see that the national leads all started grouping around Boston and the immediate vicinity, I started to take notice.

Which gets me back to the call from Client A. How much of his decision really had to do with the two of us being “close” enough? Was advisor proximity a crude substitute for the lack of trust inherent in any B2C online model? To me, this was a great example of how the reality of the NestWise model often went against the theory of planning for the middle class. As time went on, it seemed that that longer I spent thinking about how I was working and how I was reaching the middle class, the more apparent it became that what I originally set out to do may just need a little longer time than originally planned.

Although these thoughts were developing in the back of my head, in the weeks leading up to the sudden announcement from LPL’s Mark Casady that he was shuttering NestWise, I was the busiest I had ever been with regards to my practice. And to that point, at its very essence the NestWise model was a very well-oiled marketing and planning machine.

There has been a decent amount of chatter in the industry regarding the shutdown of NestWise and how it portends doom for online-oriented models targeting the middle market, where AUM is measured in hundreds of thousands. My hope is not to see the baby thrown out with the bath water. At quick glance, there are no less than 20 or so additional online offerings in the market, some of them live, like Jemstep, Learnvest and Personal Capital, and others slated to go well beyond their live beta offerings. like Quovo and Financial Guard, within the next quarter.

Hungry for advice

From an industry standpoint, everyone knows the opportunity with this market. The key to getting the model right is, of course, learning as much from our failures as we do from our wins. So if NestWise was anything, in the very least it was a proving ground for what works and what doesn’t work with the middle class when trying to scale the operation at a national level. See: Marty Bicknell jumps into the mass market with no 'robo-advisors’ and a missionary zeal.

I’m not going to get into too many specifics regarding our own internal engine, but I want to touch on some high points that I hope others can leverage. First off is the idea that the middle class is hungry for advice. I know this for a fact, and that hunger is continuing to grow over time. I wasn’t just bombarded with questions surrounding investments, but also issues regarding health care, long-term care, college planning and, most importantly, the simplest level of budgeting you could ever imagine. In fact, if I were to rank the issues I dealt with in terms of time spent; household budgeting would be the largest.

Thankfully, NestWise already knew this and had a ton of budgeting material and modules available to the general public via its robust website. NestWise also had built an incredible team out in California that we called our Concierge group in order to support and nurture these entry level services. Consider it like an internal lead development group that dovetailed off an educational and financial literacy reference group. See: Next-gen advisor breaks the standard RIA mold to grow with her young clientele — many with $100,000 or less of assets.

Concierge service

We had several very popular modules that people could use to explore their own financial goals and aspirations. Topics such as money vows for couples considering the financial reality of marriage, budgeting tools for those who had issues with cash flows and a free financial assessment were all used to fill the pipeline. And I say the word pipeline lightly, because it really wasn’t all about passing along leads to the internal and external advisors. If a person just wanted some information, needed help or had a few questions, the Concierge team delivered the goods and called it a day.

Only when a person started asking for deeper consultation or had needs that went above and beyond what the team could provide would the advisor team be pulled in. And this really was a work of art. NestWise had us all fill out a sort of grid sheet that went over our ideal planning specialties and preferences. Call it an advisor matrix for matching the personalities of prospects with the preferences of advisors.

So for example, if an advisor loved the process of planning for college, something like that was marked down on the grid. Other areas of focus could be working with teachers, families, those who were already retired, divorced, in the armed forces. Really, it ran the gamut and the Concierge team did a great job. Of course it wasn’t perfect, and there were times when a client would jump from one advisor to another, but that was the exception and not the norm.

From my side, once a client “graduated” from the Concierge group, what I had on the back end was basically a CRM portal with lead flow management, automated work queues, a financial planning engine, online scheduling and a process framework all wrapped up in one. To this day I am utterly amazed that a buyer has not stepped up and bought this outright from LPL. From a professional level, I met each day with a big “thank you” in the back of my head to the likes of Kent Smetters, who put the foundation in place to make this happen, and then further to LPL and NestWise for building on that success and taking it the next level. It made my life simple and organized. All of it made my vision for a strong middle-class practice a reality. See: LPL Financial rolls up an unusual RIA to use as a cornerstone of its TAMP-like mass-market venture.

Sunday, 7 a.m. meeting

Getting back to the platform, one example of forward-thinking engineering was a scheduling component that we shared with the general public off the Web and our own internal Concierge team. If someone went online to my advisor profile page and wanted to schedule a meeting with me, they could do so only to the extent that I had enabled the time slot as available. It was a colored grid for each day, and the advisors could block out time slots for a variety of reasons. This prevented any meetings being scheduled on top of one another, whether the meeting was planned from the main Concierge team or if a client came in on their own.

It took a little discipline to stay on top of it, but once I was accustomed to the process, it became second nature. It’s interesting to note that during this venture, not only were consumers being trained to act differently, but the advisors themselves also had to adjust some of their own theories. I point this out because one thing I noted over time was the middle class is very busy. I once left a 7 a.m. slot on a Sunday open and a prospect booked that time. I didn’t mind, but I was careful to be more on top of the tool. It turned out that the client and her husband both worked opposite schedules so Sunday morning was the only time they had to be together and they both wanted to be conferenced in on the initial call.

And that was the great part about NestWise. If there ever was an issue with respect to planning that was a manual process, the executive team thought that through, boiled it down and really made an effort to automate it. See: Why exactly LPL Financial nixed NestWise and how OSJs, once again, may be wagging the big dog.

How much does $250 buy?

Another example of this would be the actual planning process itself. For me, it was more than ideal. I say this because I was never a fan of the overwhelming book sized plan that got tossed in the garbage after a few months because something had changed. The NestWise plan was short and to the point. On top of this, the clients filled out 100% of the data entry. One day they could knock out the risk assessment, the other day could be spent working on expenses and then maybe some other time nailing down the goals. In the end they were presented with two years worth of detailed cash flows and red, yellow or green light for medium and long-term goals. All in all it was around 12 pages.

If a client was on the ball, they could fill out their fact finder in a couple of hours. One breakdown I noticed during this phase of the plan was the inability of the advisor to hold the clients’ feet to the fire to get the fact finder done. A ton of clients paid up for the initial plan but for some reason or another gave up midstream. From my own clients, I learned two things from this. Some of them only wanted a certain module of the plan (college goals, asset allocation, “what-if” scenarios). So they would complete the part of the plan they felt germane to their own needs and then skipped out on the rest. Obviously when you are dealing with holistic goal-based plans, skipping over one set of assumptions doesn’t necessarily mean that others can be viewed in a vacuum.

Another interesting part about clients stuck in the fact-finder queue was the misinterpretation of value. I got the sense with a few clients (and even prospects) that the $250 fee upfront was paid with the assumption that data work and information gathering should be done by the advisor. I had a feeling that some people may have waded through the fact finder process and then put their hands up and said, “... this is way too much detail. I don’t need all of this. And why isn’t my advisor entering in this data? I paid him $250 for what?” See: How a $1 billion Atlanta RIA is getting fellow RIAs to funnel it their small-ticket clients.

If you think about, if any financial plan should be relatively straightforward, it should be one crafted for the middle class. There is no reason why middle-class financial planning should ever get too deep in terms of complicated insurance vehicles or advanced estate planning. But still it was in here that the reality of building an online model met some challenges with respect to the balance of value paid and services rendered.

Educating the client

Assuming that all the facts were entered in the system, the work flow moved right along, and then it was up to the advisor to give the facts a reality check, maybe make a few risk overrides, and of course audit the plan for accuracy. For the most part, the software did a phenomenal job at accommodating a wide variety of scenarios. For example I walked one same-sex couple through the plan and they were floored just how deep NestWise had gone to address a lot of their planning issues and do so in a way that was seamless to the process (drop-down menus with wording like “partner,” robust disclosures, etc.) See: Christopher Street Financial’s president becomes the 'Talk of the Town’.

Sure there were little issues that crept up from time to time, but thankfully all the advisors shared ideas and planning questions on a private forum and were smart enough to work through them. One issue in particular that was frustrating was the inability to treat some repeat cash flows as expenses with a fixed expiration as opposed to setting them up as goals (with an end date) and then telling the system that didn’t need to assign a funding priority.

Overall, once the client and the planner got through the software, the end result was easy on the eye, had some great information-rich charts in it and really left the client with a feeling that because they took the time to input the data, they had a stronger comfort level with the plan. Involving the clients from the beginning of the planning process turned out to be key — not only to the relationship, but to their own skin in the game in terms of time invested and more importantly to the ever-present issue of expanding their own understanding of personal finance. Every time I completed a plan and reviewed it with a client, I felt like the score for national financial literacy was +1 and the score for complacency was 0.

Portfolios get the job done

Having the planning process nailed down like meant that in a typical week I could easily spend 50% to 75% of my time prospecting. It was what NestWise had promised me during the hiring phase, and it was a reality that I experienced. So while I was out attending chamber of commerce meetings and networking within my natural market, on the back end, the Concierge team was humming along and my clients were working their way through their own fact finders. I even got text alerts and e-mails that were automated from the system to let me know when a client loaded something to their online document vault or moved from one phase of the planning process to another (or if someone had scheduled a meeting with me and wanted a call back as soon as possible). I really never felt any pressure to stay on top of the 20 to 30 active accounts in my queue because the system had features in place to boil all of that down and make it very easy to manage.

Another part of the NestWise model that I loved was the fact that asset management was never pushed on the clients. We in fact had two versions of the plan that could come out of the system. One version matched up the asset allocation ranges with our own internal strategic portfolios (fund-based and ETF-based) while another version simply laid out the exact asset allocation the client would need, and then they could go to their own wirehouse or wherever they held their assets and construct it on their own.

The portfolios themselves got the job done, and I think presented the client with a nice set of options in terms of professional asset management. In addition to our own internal portfolios, we also had some boutique offerings from BlackRock and Morningstar that charged a few more basis points than our own offering. All in all, there were around seven model portfolios that the advisors tended to use, and each one of them was broken down into five levels based on risk tolerance. Again, this is yet another example of something that was designed by NestWise to scale and designed in a way that took something very difficult and made it easy to understand (a constant theme from the designers of the system I felt was the natural ability to present something in its simplest form and never any more difficult than it had to be). See: LPL Financial sees explosive asset growth of model portfolios by linking BlackRock and J.P. Morgan-level brand names to the little guy.

Trusting the online process

If everything went according to plan, there really was no reason why a large percentage of inbound clients (and those from my own natural market) would not end up as long term paying customers. The key driver in all of this, and an issue about which NestWise was very sensitive too, was the understanding that the middle class is exhausted, running 24/7 during the week, and when it comes to dealing with their finances, someone needs to take the time to explain a bit more and maybe put on the kid gloves for some sensitive issues.

The most sensitive issue? Hands down, the one that turned out to be the most challenging was how to convey trust in an online environment. It is to this day a major issue for the middle class, and really who can blame them? They have had their mortgages bought and sold countless times, endured the crash of ’87 and, if they were lucky enough, caught a consistent flow over the years of sound bites from National Public Radio about flash crashes that show up when least expected. See: RIAs and online brokers are winning the market-share game.

Passion survives

In my time with NestWise, I got the sense that the trust part of the equation really was going to be the largest hurdle we faced. It was an unknown that could enter the framework and completely derail any efforts or, worse, stop the entire process dead in its tracks.

And dead in its tracks is exactly how I would describe the demise of NestWise. Despite all the initial success we experienced as advisors, in a brand new environment, the plug was pulled on the whole venture in the blink of an eye. Like I said, the two weeks leading up to the Aug. 28 announcement of our closure (coincidentally my birthday) were my busiest ever. During this time I really began to see the value of the system, the controls that had been put in place and the benefits of having a stellar advisor coach who backed me up to pull it all together. Every single advisor on that call who was totally shocked to hear the news of our impending closure from NestWise chief executive Esther Stearns. See: Why exactly LPL Financial nixed NestWise and how OSJs, once again, may be wagging the big dog.

Only at this point, after really seven months of some of the best work of my life, did I begin to lose a little trust in the system. Better said, it was a sliver of disappointment caught in the tornado of planning for the middle class. Thankfully, in having conversations with those companies who are courageous to continue to work on this problem, it is very easy to see that the same passion that NestWise embodied will survive for many years to come. I know for a fact that someone, someday will figure this out, and truly believe it may in fact take a few more failures before the right model takes off and changes the market.

Closing note: RIABiz received this from LPL after reaching out for a comment about this column: “LPL Financial believes financial resources earmarked for NestWise can be more effectively deployed in other areas of the business, and will be redeployed into our core business consulting activities for both advisors and institutions for training development.”

With more than 10 years’ experience in the corporate world, working for organizations such as PricewaterhouseCoopers, E*TRADE Financial, NameMedia and AOL Inc., Andrew Ghezzi has provided strategic direction for national new-product launches and managed a wide variety of nationally based sales and marketing programs. Now, he enjoys providing comprehensive financial advice and planning to families, professionals, retirees and small-business owners who are unsure about their financial options and need comprehensive, considerate and cost-effective planning and support. Ghezzi is also an independent contractor working on strategic direction and sales automation for Quovo.com and Ascensus Inc.


Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Bill Morrissey

Morningstar, Inc.
TAMP
Top Executive: Joe Mansueto



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Brian Murphy said:

October 29, 2013 — 12:43 AM UTC

Nice overview – it’s a shame the service wasn’t given a bit more time to ramp and develop. Seems like the market is definitely there; just needed a bit of continuous pruning around the edges.

I agree that trust is a big issue, however I suspect that trust gets won both on an individual and platform level over time. So, the one millionth client isn’t as hard a sell as the first wrt trust.


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